Thousands in shock as levy and other tax increases hit hard on top of PRSI
The rapacious Universal Social Charge (USC) could derail any hope of a recovery in the "real" economy, according to retailers, who fear there will be at least 2,700 redundancies in the sector this month.
In a forced amendment to the new tax made during the passing of the Finance Bill, Minister Brian Lenihan cut the rate of the USC for medical card holders.
Now medical card holders will pay a maximum rate of 4 per cent, rather than the 7 per cent announced on Bud-get Day.
To make up the money lost because of the amendment, the USC has been increased to 10 per cent on self-employed people earning more than €100,000 per annum.
Despite the minor tinkering with the new tax, tens of thousands of workers were still in shock as the true cost of the USC became clear.
Retail Excellence Ireland (REI) says that 400 stores will close this month, following the toughest two weeks in living memory for retailers.
REI chief executive David Fitzsimons said: "People aren't going out and they're not spending. The USC has shook people up and the last two weeks have been abysmal."
He said that REI research on the problems facing retail had been backed up by the official data compiled by the Central Statistics Office (CSO).
"The CSO's retail data paints a similar picture to our own -- the decline in retail sales that has affected Ireland's retail industry over the past three years continues. There is no reason to believe that this trend will come to an end. As a result, we anticipate that January will see roughly 2,700 redundancies within the retail industry."
He continued: "We eagerly await the publication of proposals from Fine Gael and Labour to help domestic economic activity and the retail industry in particular."
Changes to tax bands and credits mean that more than 132,000 extra people have been brought into the income tax net.
Another 84,000 people will find themselves paying tax at the higher rate of 41 per cent this month, many of them for the first time in their working lives.
The USC amalgamates health and income levies that were introduced, and already increased substantially, in the last three years.
Only those earning less than €4,004 per year are exempt, and while money from social welfare and State pensions is not taxable, most other income is liable to the USC levy. Those under 70 pay 2 per cent on the first €10,036 they earn, 4 per cent on the next €5,980 and 7 per cent on everything above that.
Those who are over 70 are also hit by the universal charge, paying 2 per cent on the first €10,036 they earn and 4 per cent on every euro they earn above that.
It means that most people are substantially worse off. Many of those those who were exempt from the health and income levies will now have to pay the USC, although those on the medical card will pay a lower rate.
Lower-paid workers on less than €500 a week, working widows, working lone parents, the over-70s and other pensioners with occupational pensions are also affected.
Many people have been shocked after making comparisons between the amount they previously paid under the health and income levies last year and the amount they will now have to pay under the new USC.
Some people discovered they would be paying nearly €1,000 a year extra in USC payments alone.
One reason for the big increases is that the payments they make for pensions are no longer deductible for PRSI purposes. But it gets worse. Pension contributions are not deductible from the USC either.
Last year the income levy was 2 per cent for those earning up to €75,036, and the health levy was 4 per cent for incomes up to that amount.
Adding the two old levies together meant that middle- income earners were paying 6 per cent.
The health levy did not apply to pension contributions. Now the new USC is 7 per cent for any income over €16,016 and is imposed on gross income, before deductions for a pension.
The USC is on top of PRSI (Pay Related Social Insurance) of 4 per cent.